Head & Shoulders. Really?

Financial media was abuzz with Head & Shoulder pattern on the S&P 500 index in the beginning of July 09. That "failed" pattern dug a hole in wallets of many Technical wannabes. Lets be clear, if you hear about a Chart Pattern on TV, it is bound to fail. In other words, when everyone and their favorite cabby overwhelmingly believe that the Mr. Market is going to act in a certain way, Mr. Market is surely going to disappoint the majority and doggedly frustrate the mob.

Now our old friend VMW seems to be serious about its H&S pattern. Watch the price action since Sep 09 and you will see clearly S-H-S (shoulder-head-shoulder). The neckline is at $37.55. The target drop is $7.75 from the neckline, making $29.75 the target for pattern completion.

But the reason I like this pattern is because the volume action is confirming. Note the three blue slanting lines in the volume area. The volume is decreasing on all three rallies in the formation of S-H-S. This component makes the pattern more reliable and less prone to failure.

But failure may occur nevertheless. So, I am telling myself to go short (sell stop) at the breach of neckline, tighten the stop at $32.65 that happens to be support and target $30 for the pattern completion.